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The Bank of Japan and the Japanese government on Thursday bought yen and sold US dollars in a bid to contain the yen’s slide after the currency breached the key threshold of 145 this week. Japan forex intervention comes after the US Federal Reserve on Wednesday hiked interest rates by 75 bps for a third consecutive time, putting pressure on global currencies.
The yen has declined more than 30% in the past year and hit a 24-year low of 145.90 against the dollar after the Japanese central bank on Wednesday decided to continue with its ultra-loose monetary policy. “I can assure you that there will be no monetary tightening for the time being…,” Bank of Japan Governor Haruhiko Kuroda said earlier.a
Japan forex and the strong dollar
“At best, their action can help to slow the pace of yen depreciation,” Christopher Wong, a currency strategist at Oversea-Chinese Banking, told The Japan Times. “The move alone is not likely to alter the underlying trend unless the dollar, U.S. Treasury yields turn lower or the BOJ tweaks its monetary policy.”
The forex intervention is a big move for Japan which has favoured the yen slide in a bid to increase exports. Japan had previously intervened in the forex market back in 1998 during the Asian financial crisis when the yen had touched 146 against the dollar.
The Japanese yen is currently the worst performing Asian currency and some market experts see the yen slide past 150 this year. “The Japanese will have to convince US authorities that the strong dollar is a problem, such that G20 FX language is altered. That is a tough task, with the Fed still seemingly welcoming dollar strength,” ING said in a recent note.
After the news of the intervention, the yen recovered sharply from its multidecadal lows to strengthen as much as 140.31 against the greenback. Japan is the only country in the world which has stuck to negative interest rates, and there is a tug of war going on between the finance ministry and the central bank.
“We have taken decisive action,” said Masato Kanda, vice finance minister for international affairs, the top currency diplomat of Japan.
